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Tesla Tweaks Its Financing Plan In Response To Criticism

Tesla Stores might be seeing more traffic as financing makes the company's cars more affordable.

When Tesla rolled out its somewhat novel vehicle finance product last month, it deservedly took criticism for suggesting one could take home a new Model S sedan on the cheap. Some of that criticism was found in this blog: “A Brand New Tesla For $500 A Month With No Money Down? Well, Sort Of.” Today, the company has improved its offering a good deal, increasing the guaranteed resale value on its vehicles by nearly 20% and extending the financing term from 63 to 72 months. And the company’s financing calculator is a lot less aggressive, resulting in a more realistic picture of what Tesla hopes you’ll understand the “net cost” of the vehicle to be.

Better terms all around. To sweeten the deal, the company first answered critics who claimed that pegging the 3-year resale value to the Mercedes S-class — which is among the lowest among premium sedans — wasn’t helping buyers or sending a strong message. Admitting they, “”didn’t get it quite right a month ago,” Tesla CEO Elon Musk said that guarantee will now be bumped from 43% to 50%, which represents a best in class figure. The class here includes vehicles from BMW, AudiAudi, Jaguar and Mercedes, excluding a few limited-edition models.

Musk said the change will be retroactive to people who already financed their cars and that his personal guarantee still applies. On top of that, if your vehicle is worth more and you choose to trade it in, Tesla will pay you the market value. The 50% figure will be re-evaluated over time to keep it atop the industry.

To make the vehicle a bit more affordable, Tesla’s financing partners, U.S. Bank and Wells FargoWells Fargo, will now offer the loan over 72 months instead of 63. That spreads the payments out a bit more and while it adds payments on the back end, it makes the car about 12% more affordable each month along the way.

Musk believes that with the gas savings an electric-vehicle provides, financing makes sense for most people since you realize the benefit over time, not entirely up front. Realistically, that’s true given that most people will find themselves paying $150-250 less at the pump each month, even accounting for some additional electric consumption.

“As a cash purchase, our cars are accessible to the top 1% of households,” he noted. “With the right finance, we’re accessible to the top 10% maybe.” Today’s tweaks make the finance product a bit more right, although it’s accurate to note that only the change to the loan length will directly affect the monthly payment.

Less fuzzy math. The other changes weren’t as substantive. Previously, the company provided “net cost” calculations that assumed you’d save up to $100 month by not waiting at gas stations or by using carpool lanes. As I noted previously, those savings applied to people who bill by the hour, but the rest of us tend not to look at our time that way. Similarly, only a small portion of buyers can take their car as a business expense and Tesla acknowledged that, no longer assuming it in the default settings on its calculator. Other small changes there included less aggressive forecasts for the price of gasoline and more optimism about the gas mileage another car might get.

As with last week’s announcement tweaking the company’s service policies, Tesla has demonstrated it’s listening to customers: “We looked at it and decided we were wrong and other people are right,” Musk said today. And while you still will find it impossible to drive off the lot for $500 a month with nothing down, in California, an “effective cost” after gas savings of just over $700 is possible (including sales tax, by the way) .

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